FDI And China’s CO₂Emissions

In the1990s, economic globalization had swept the whole world.The world economy started an in-depth integration. Foreign direct investment (FDI) has played an important role in globalization, and it has become a major characteristic of globalization. However, environmental problems such as climatic anomalies, global warming have become more and more serious when FDI volume is continuously rising, which threats to human survival and development of material basis directly, and received extensive attention from various countries all over the world.Since China began to implement policy of opening and reform, China attracts worldwide substantial inflows of foreign capital owing to China’s huge market scale and rapid rate of economic growth. According to the statistics from China Ministry of Commerce, China’s FDI in1986was only US＄2,250million, and in2011it is rapidly climbed to＄116billion. Regarding to the FDI scale, China has become the main FDI inflow country in the world without doubt. However, when promoting China’s economic growth, solving the problem of urban and rural labor force employment, and promoting trade surplus and tax increases, the flow of FDI may also make our natural environment get worse at the same time. The main reason is that there is a considerable scale of funds entering into the "Three High"(high pollution, high energy consumption, high emissions) industries when foreign investment flows into China, a large number of fossil fuels used by "Three High" industries would cause a series of environmental problems, especially the emission of CO2. At the same time, different countries’FDI have great differences in objective and orientation, domain and structure, technology and energy efficiency, and influence on CO2. What’s the influence that the inflow of FDI makes on CO2emission in China? What are the differences between the effects of FDI in different sources? What are the differences of the influence that the regional and industrial distributions of FDI in China make on CO2emission? What kind of adjustments China need to do in foreign policy? And so on, all are the important issues worthy of our consideration and research.In recent years, with the expansion of opening up, climate changes have become a hotspot issue in the academic world. Many scholars have conducted in-depth research of the problem. Concerning the existing literatures, such research has been done in developed economies for about20to30years, and the research findings are enormous. However, such research is insufficient in developing economies like China. Especially after China became the world largest emitter of CO2in2006, China’s emission of CO2has reached a record high. Against the backdrop of growing international pressure, it is impertinent for China to conduct such research.To this end, based upon the theory of the relationship between FDI and environment, this paper constructs the theoretic analytic framework of studying the relationship between FDI and CO2emission from positive and negative aspects, and deeply analyzes the classic features of our nation using FDI after the opening up, and then comprehensively analyzes the relationship between FDI and our country’s CO2emission in terms of different foreign investments origins, FDI’s location characteristic, industrial distribution differences and restraints of environmental regulation, thus proving strategic thoughts for our country to expand opening up and build ecological civilization and realize sustainable development.The main sections of this paper were as follows.In the first part, based on the relevant theories about the relation between FDI and environment, this paper will systematically introduce the relevant literatures about the relation between FDI and environment. After that, this paper will analyze the mechanism and reasons and theoretical bases of FDO’s influence on environment from the positive and negative sides. This paper will analyze from five aspects, namely Pollution Haven Hypothesis, Marginal Industries Expansion Theory, Product Life Cycle Theory, International Production Compromise Theory and Porter Hypothesis. All these hypotheses lay the theoretical bases for the analysis of the relation between FDI and CO2emission.In the second part, this paper concludes and analyzes the feature fact of our nation using foreign direct investment after the reform and opening-up policy. This paper comprehensively analyzes our country’s status of using foreign investment in terms of four aspects, which are gross characteristics of using foreign investment, origin source characteristics of different foreign direct investment, area characteristics of foreign direct investment and industry flow of foreign direct investment, thus providing practical basis for the following research on the relationship between foreign direct investment and carbon emission.In the third part, from the characteristics of sources of China’s FDI, this paper studies the different effects that foreign investments from different sources make on CO2emissions in China. This paper divides the foreign sources into four parts:Hong Kong, Macao, and Taiwan; Japan, Singapore, and South Korea; the United States, Canada and Europe; and other countries, and then makes an analysis of the relationship between the FDI in different sources and the CO2emission in china with the methods of constructing measurement model, unit root test, and co-integration test.The research finds that there exists a co-integration relation between FDI of different sources and China’s CO2emission. Moreover, the influence degree and direction of FDI of different sources on China’s CO2emission are different. FDI from Hong Kong, Macao and Taiwan will increase China’s CO2emission. It is the same with the other countries or regions. However, the increase elasticity of the latter is smaller than the former. FDI from Japan, Singapore and Korea as well as Europe, America and Canada will reduce China’s CO2emission. The contribute rate of the latter three countries to reducing China’s CO2emission is far higher than that of the former three countries. The reasons of the differences are explored and relevant solutions are put forward.In the fourth part, this paper investigates the relationship between the FDI in East, West, and Middle total three large regions of China and CO2emission in China from the aspects of the FDI in different regions, different provinces in China with the provincial panel data of30provinces in China. The research results indicate that there is a long-term equilibrium relationship between FDI and CO2emissions at the regional level, the FDI at the east of China reduces CO2emissions, the FDI in the middle of China increases CO2emissions, and the influence of the FDI in the west of China on CO2emissions is not significant. The paper also analyzes the effects of urbanization process on CO2emission. The empirical analysis shows that our country’s urbanization mounts up the CO2emission in the eastern and central regions of China, the influence in the west of China on CO2emission is not significant.Economic growth will increase CO2emission in all the three parts, but economic growth is the dominant factor for CO2emission in China’s eastern part. Research also shows that there exists inverted U relation curve in China’s eastern and central parts, but that doesn’t exist in China’s western part.In the fifth part, from the perspective of FDI industrial distribution, this paper divides China’s industries into three parts based on elements intensity:capital and technology intensive, labor intensive and resource intensive. It also makes an empirical study on the differences between the influences of FDI industry distribution on CO2emissions in different types of industries. FDI is a "double-edged sword", FDI in different industries exists different and even opposite effects, which shows a strong industry properties and industry characteristics. The FDI effectively reduces CO2emission in capital and technology intensive industries, increases CO2emissions in resource intensive industry, has not significant impact on CO2emissions in labor intensive.In the sixth part, this paper introduces system variables to research the influence of strength and changes of environmental regulation constraints on CO2emissions.This paper will make use of the time serial data from1994to2011in China and the provincial panel data from2003to2011in China. Through that, this paper will conduct empirical research of the relation between environmental regulations and CO2emission. The co-integration analysis based on the time serial data show that FDI and environmental regulation can both effectively reduce CO2emission. There exists a long-term balanced relation between FDI, environmental regulations and China’s CO2emission. FDI and environmental regulations can both effectively reduce CO2emission. The research also shows that there is technology spillover effect of FDI in China, which can effectively reduce China’s CO2emission. Therefore, Pollution Haven Hypothesis is false in China. The environment regulations reduce China’s CO2emission. But the executive force and strength are not enough.Lastly, this paper concludes and summarizes the research findings analyzed in the previous chapters, and puts forward relevant polies and suggestions on how to handle well the relation between expanding opening-up, employing FDI to develop economy and reducing CO2emission.The innovative points of this paper are as follows:Firstly, compare perspective from different sources, so as to study the relationship between FDI and CO2emissions. In previous studies in China and abroad, most literature only studies the relationship between FDI total amount and the emissions of different kinds of pollutants, the study is general, which is limited to the aggregate level. This paper makes a comparison based on the differences of the influence of foreign sources on CO2emissions in China with a more detailed study, and draws a new interpretation, which is propulsion compared with the macroscopic research in the past.Secondly, Based on provincial panel data, this paper introduces difference variables of FDI with urbanization and economy growth, and verifies the existence and changes in the law of Environmental Kuznets Curve (EKC) at the regional level. The past studies often ignore the huge differences of regional economy in China, and few studies involve the influence of FDI on the shape and trend of EKC. This paper’s study is a new attempt of researching the relationship between FDI and CO2under the background of China’s unbalanced industries and economic regions.Thirdly, Among the existing literature, most of the studies don’t research the influence of the differences of FDI industrial distribution on CO2emissions from the perspective of factor intensity. This paper divides the industry according to factor intensity, and makes in-depth analysis of the influence of the differences of FDI factor intensity on CO2emissions, provides empirical evidences for reasonable guiding of FDI industry, and developing appropriate industrial policies.Fourthly, Environmental regulation is also an important factor to impact on CO2emissions, however, because environmental regulation is an unease quantitative element, few existing literature researches on the relationship between FDI and CO2from the perspective of environmental regulation. This paper examines the influence of FDI and environmental regulation on CO2emissions with time series and panel data. Although there are some defects on research design and empirical analysis results, it can yet be regarded as a valorous attempt.Though this paper conducts empirical research of the relation between FDI and CO2emission from several perspectives, it is limited to the accessibility of data. This paper fails to conduct an in-depth research into the relation between the two from the perspective of micro-enterprise. In fact, the energy consumption of enterprise is the main source of CO2emission. At the same time, the research in each part should be furthered. Whether in terms of data source, measurement method or index selection, there is great room for improvement in order to study the relation between FDI and CO2in a more scientific and more accurate way. With the expansion of China’s opening-up, China’s economy will integrate more with the world economy, and its environmental issues such as CO2emission will arouse increasing attention from the academic world and government departments. Though there are some limitations, this paper’s in-depth research of the relation between FDI and CO2emission and the analysis conclusion can provide reference for theoretical research and policy and decision-making department. It can also contribute to policy maker’s rational thinking in tackling with the conflict between reform and opening-up and environmental issues and enforcing the correct decisions. This will contribute to building an environmentally-friendly society featuring harmonious development of man and nature.